Mending GSK’s broken China
The fact that Walmsley lived and worked in Shanghai for several years when she was with L’Oreal will not have been lost on GSK chair Sir Philip Hampton. It’s hardly a secret that the wheels came off GSK’s Chinese operations spectacularly badly back in 2013. You know something’s gone seriously awry when the government hands out a £300m fine for bribery and your ex country head ends up with a three year suspended jail sentence.
Walmsley’s direct personal experience of – and connections to – China will not only be of practical help in rebuilding GSK’s business there. They should also provide a much-needed boost in credibility.
She’s an outsider (sort of)
GSK has had plenty of ‘official’ trouble on Witty’s watch – the aforementioned China crisis of course, but also a $3bn fine in the US for selling drugs for unapproved uses, a $750m fine in Puerto Rico and a £37m fine in the UK from the CMA for delaying the release of cheaper generic rivals to some of its drugs.
Critics suggest (not unreasonably) that this points to cultural problems that GSK lifer Witty was ill-equipped to tackle. Although she has worked for GSK since 2010, Walmsley comes from a very different background – 17 years with consumer packaged goods and beauty business L’Oreal – and her fresh eyes and wider experience should put her in a strong position to help GSK clean up its act.
She’s a marketer not a pharma specialist
The fact that she has spent her career selling shampoo and maybe doesn’t know all that much about the vital and expensive business of drug research might sound like a reason not to give her the job, but bear with us.
GSK operates a diversified strategy, in which the huge financial swings of drugs research (it typically costs £1bn and takes a decade or more to bring a new drug to market) are offset by the much steadier income from its consumer health biz – toothpaste, OTC medicines and so on (it even used to own Ribena and Lucozade but sold them in 2013).
But big name investors including City star Neil Woodford don’t like this, they reckon that ‘diversification’ is another way of saying ‘we do two things less well than we could do either on its own’. Woodford has called for GSK’s consumer and pharma divisions to be split to release value to shareholder, but the appointment of Walmsley seems to indicate that the consumer business (which now accounts for 17% of revenues) will remain core. (This matter to all of us, because GSK is one of the leading RnD operations in the UK and employs 16,000 people here.)
Walmsley knows about the bottom line and has a track record of revenue and profitability growth – fast moving skills she should be able to apply to GSKs drugs business too, where margins are twice that of the consumer goods she is used to but capital cycles much longer.
As a marketer Walmsley also knows how to get the message across – to investors, customers, employees, governments and the general public. An increasingly vital skill for any CEO.
The diversity angle
The fact that one of the plummiest of the UK's plum jobs has gone to a woman is surely a very welcome mark of progress. GSK already has 5 women on its board making it one of the most female-friendly top teams in the FTSE100 (perhaps not surprising then that chairman Philip Hampton is leading a government review into increasing the number of women at the head of UK plc). The other 6 female FTSE 100 CEOs are Alison Cooper at Imperial Brands, Alison Brittain at Whitbread, Carolyn McCall at easyJet, Liv Garfield at Severn Trent, Veronique Laury at Kingfisher and Moya Green at The Post Office - but GSK's market cap is twice that of the next-largest of those, Imperial Brands.
Plus a couple of things to watch out for...
So there it is – cometh the hour, cometh the woman. There are some caveats though. For starters although this is looking like a very well-oiled succession plan, it’s taking quite a while and the longer it goes on the greater the likelihood of a banana skin cropping up somewhere.
Secondly, the markets don’t seem entirely convinced – shares dropped (only by 1% but still) on the news, partly no doubt due to disappointment at the receding prospects of a juicy demerger (see above). But also perhaps because of fears that her appointment might mean less attention and investment for GSKs core drugs and vaccines operations, whose 30% margins are a big part of the firm’s investor appeal - and economic importance.
Adressing those fears should be one of the first things on Walmsley’s to do list.